Biogen Could Use This Shot in the Arm

May 15, 2002

By David Shook Among the beaten-down biotechs, Biogen (BGEN) is the one that investors are closely watching this month. Like many companies in the sector, Biogen is a one-hit wonder. But that could soon change: On May 23, it's expected to find out whether a second blockbuster drug might be within reach.

Biogen's current claim to fame is Avonex, the No. 1 treatment for multiple sclerosis. Last year, the drug generated nearly $1 billion in sales, but this spring it came up against competition from Rebif, an MS medication from Swiss biotech Serono. As a result, Biogen's profits have leveled off. In the first quarter, Biogen had net income of $47 million (47 cents a share), equal with last year's first quarter.

TRICKY TREATMENT. Now, Biogen is pinning its hopes for growth on Amevive, an experimental treatment for psoriasis. Some 7 million Americans suffer from the chronic skin disease, and no long-term treatment or cure exists, so Amevive could be the blockbuster Biogen needs. However, concerns about possible serious side effects have some wondering whether Amevive will be a go. On May 23, a panel of medical experts for the U.S. Food & Drug Administration will convene to review the drug's safety and efficacy.

Though psoriasis isn't fatal, it's a lifelong condition that's marked by skin lesions all over the body. The psychological affects can be the most devastating aspect of the disease, doctors say, and makes finding a cure -- or at least an effective therapy -- all the more important. The tricky part is developing a drug that doesn't have serious side effects.

Psoriasis is a disorder in which an overactive immune system causes abnormal cell formation, which in turn produces the skin lesions. Why this happens remains a mystery, but several new experimental drugs attempt to tackle the illness by reducing the action of certain immune responses. Biogen's Amevive is designed to block the production of T cells, a type of white blood cell activated by the psoriasis sufferer's immune system. Once turned on, the T cells release chemicals that tell skin cells to reproduce and mature at an accelerated rate, triggering other reactions that culminate in lesions.

"HIGH SAFETY HURDLE." Tinkering with cells of the immune system may sound like a logical therapeutic approach, but it engenders a major medical debate. A drug that targets T cells, some doctors fear, could leave a patient vulnerable to a host of viral and bacterial diseases that the body can normally fight off. "Anytime you start messing with the immune system, especially when it's for a disease that doesn't kill people, you're talking about an extremely high safety hurdle," says a New York money manager who watches Biogen closely.

To date, one of the most commonly used drugs for treating psoriasis is cyclosporin, a powerful immunosuppressant that can have severe side effects. So FDA doctors will be scrutinizing the Amevive data for any sign of increased risk of infections or other side effects.

While Biogen hasn't released a full report on Amevive's side effects, it said last year that they weren't significant in clinical trials. Last summer, doctors who worked with the drug experimentally said Amevive targets a highly specific immune cell, leaving the rest of the body's defense system intact. One of the physicians, Dr. Mark Lebwohl, a professor and chairman of the Dermatology Dept. at New York University's Mount Sinai School of Medicine, said the most frequently reported side effects included headaches, itching, and flu-like symptoms, but they appeared in only a small number of patients. People using the drug were reported to be able to respond normally to other antigens or "invading foreign molecules," he reported.

EYES ON THE FDA. The dual concerns about Avonex' competition and Amevive's approval have weighed heavily on Biogen's stock. It has fallen from a one-year high of $67 last summer to a recent low of $38. In the last few months, as chatter surrounding the upcoming FDA meeting has grown, Biogen shares have tumbled from $57 in early March, closing May 15 at around $42.

"The market seems to be betting against the company's chances," says one Biogen watcher. But that's all the more reason why the stock might be attractive if Biogen receives anything but an outright rejection from the panel, some contrarian investors say. Although the full FDA commission will make the final decision later this year, it almost always sides with the recommendations of its expert advisory committees.

Why are all eyes on this one meeting? Lately, the FDA has been tough on biotechs with experimental drugs, not hesitating to ask for additional safety data at the last minute -- or simply rejecting a drug because evidence on long-term safety or efficacy is insufficient. In the last six months, the stocks of ViroPharma (VPHM), Xoma (XOMA), and, most notably, ImClone Systems (IMCL) have dived after the FDA rebuffed drug applications or other matters.

Since Biogen is one of the biggest companies in biotech, "That's why everyone in the sector will be watching this meeting closely," says Paul Walker, a biotech analyst for MPM Capital Management. "It's not just pivotal for Biogen, this is a very high-profile event for the sector."

YES, NO, MAYBE. Some Biogen watchers suggest that the expert panel could choose neither to accept nor reject the drug but instead ask the outfit to conduct further trials or supply more data on the existing studies. That wouldn't be so bad. The stock has been pummeled so hard that it's unlikely to tumble much further if Amevive is rejected outright.

Once this panel makes its decision, the full FDA has until Aug. 6 to officially approve the drug for marketing in the U.S., reject it, or ask for additional clinical data or more studies while delaying a final decision.

Biogen remains confident about the drug's potential, says spokeswoman Kathryn Bloom, who adds: "We recognize that [the expert panel's decision] is an important step, but it's just a step in the entire development process. Regardless of what decision is made by the advisory committee, there will be continued discussions with the FDA. We have said, and continue to say, that we expect the drug to be approved at the end of 2002 or early 2003."

Still, an FDA rejection will do no favors for the stock. But high risk and disappointment have been the story in biotech this year. It may be an underdog at the moment, but if Biogen can convince the FDA that it has a winner on its hands, investors might be rewarded. Shook covers biotechnology issues for BusinessWeek Online. Follow The Biotech Beat every week, only on BusinessWeek Online